Will the big downturn in U.S. soybeans last year repeat this year?

These past two days the "force of the primeval" has pretty much flooded WeChat and Weibo, and in the agricultural futures circle, the rapid addition of positions and strong rallies in oils and oilseeds have also spent all their primeval force. A light look back at the past: the torrential rains that hit Argentina in April kicked off the primeval force of the rally, and driven by worries about declining Argentine soybean output, quality and exports and delayed crushing, the two buddies, the United States and Brazil, happily nibbled away at the market share left open by Argentina's absence, and their exports each accelerated. The supply elasticity of protein is stronger than that of oils, and the oil-meal ratio slid sharply under the disturbance on the supply side. The market's surprises always come one after another, or perhaps the wounded nerves simply cannot take any more fright. Hot, dry weather in the U.S. soybean growing region stirred up a surge of excitement in the market; the weather handoff was perfect, and U.S. soybeans happily marched on.

Market risk always comes hand in hand with profit, and the betting of long and short weights always turns the balance around when you least expect it. After Argentina's soybean losses, the soybean supply-demand projection gradually became clear, and Brazilian soybean exports sped up; but the risks during the Brazilian soybean growing period were simply forgotten by the market. After output on the supply side was revised down, the consequence of accelerating exports gradually shifted into a worry that the pace had been too aggressive, and a tendency for soybean exports to contract on their own began. In other words, before the new-crop South American soybeans come to market, global soybean purchasing from September to December will be mainly borne by North America.

Now this logic is gradually being understood and traded by the market, but the first time this writer saw this logic laid out was back in April, that is, after the Argentine rains, in Dr. Dou's Weibo post about the outlook - more than 3 months ahead of the present time! For those rooted in soybean research, the logic is clear and discernible and holds opportunity. Before the June 30 acreage report was released, the bulls, even with the rally in U.S. soybeans, also feared a larger-than-expected increase in planted area; out of risk-aversion considerations, U.S. soybeans showed a retreating, declining trend before the report. The June 30 U.S. soybean planted area came in with an increase of less than 1.5 million acres, neither good nor bad, within the market's expected 1-2 million acres, and that day U.S. soybeans jumped more than 3%. Actually the logic here still leaned on weather: with the slight yield loss caused by hot, dry weather, damn it, the output gained from that bit of extra area was not even as much as the loss, and following this logic U.S. soybeans shot right up with a howl.

Although the bulls' logic was very good, the market's logic always winds back and turns when you least expect it. In early July, rain in the main soybean growing areas dispelled the market's drought worries, and the market's logic returned to the logic of rising yields under a high good-excellent rating, while the increase in area dealt a counterblow, and U.S. soybeans were pressed down so hard they could not turn over, falling in a posture of step-by-step retreat, which was not too ugly a look, all things considered. Before long, the market's logic finally got room to breathe: U.S. soybean exports were accelerating! The acceleration of exports made the export line item in the U.S. soybean 2015/16 balance sheet likely to rise substantially - inspections, export volumes, ending stocks, stocks-to-use ratio, and so on - thus transitioning to yet another revision of the balance sheet. As the logic above says, these are right! It was at this point that the bulls' logic got a brief space to maneuver; at least the push from the smaller logic in the gap before risk arrived, with the big addition of positions in oils and meals, was quite a show of pride.

From the current perspective, the weather factor should be said to be greatly weakened, and there is basically no need to worry about the weather over the next 10 days. So here comes the question: U.S. soybeans, just what is your yield going to be? At present, the estimate range from professional consulting institutions in the market spans 47.5-48.8 bushels per acre. In fact, comparing with the 2015/16 yield, do you still remember that rainstorm in June 2015? That's right, U.S. soybeans under the onslaught of that rainstorm still had a final yield as high as 48 bushels per acre. Do you still remember that huge, big bearish candle on August 12, 2015? U.S. soybeans fell more than 6%!!! The wave of limit-downs in domestic oils and meals is still faintly visible, mainly stemming from U.S. soybean yield coming in far above expectations!!!

August 12, 2016 has already arrived, and the cycle of time is always like this - a year has passed before you know it! Judging from that rainstorm in June 2015 during the 2015/16 season, the impact of weather on yield is weakening, and over the next month or so, if there is no major natural disaster, the 48 bushels per acre U.S. soybean yield will surely be easy to exceed. But what if the market really springs a surprise right on August 12? The yield is not revised up substantially!!! You might go on and on, and you'd be right! Therefore, as far as the price change process is concerned, a one-sided bet on U.S. soybeans rising still carries relatively large risk! At this time last year, do you still remember that surprise?(Special contributor Yipin Soybean; article from the exclusive original content of the Agricultural Futures Network)